Think about it. When are times ‘easy’?
As I write, we face inflation, COVID-19, wars, trade tensions, the ups and downs in interest rates, currency exchange rates, and commodity prices, and as well as an ever-evolving political, economic, and social climate around the world. Here, they are sufficient to suggest that ‘Uncertainties’ is a certainty in present times.
So, is it still relevant to invest during tough times?
Well, it depends. Some reacted by not investing altogether. But, the approach is likened to an ostrich burying its head in sand. That is impractical. Today, I would say the awareness to invest our money has largely increased among the general public. But, what we may lack is a plan to navigate our investments through the stormy seas in the markets today.
Here, I observed two different approaches to such navigation. They are resulted from having a different set of beliefs on the subject of investing. Let me explain:
Approach 1: Market Predictions
This refers to investors who believe that wealth is about having more money. To them, if they invest in an investment, be it stocks, properties, ETFs, cryptos, and so on and so forth, and its price had appreciated, they would consider it to be a good investment. If its price had fallen, it would be deemed as a failure. Thus, it is common for them to measure investment success based on the following:
Price Goes Up = Good Investment.
Price Comes Down = Bad Investment.
Hence, they would tend to invest in good times as prices of investments tend to rise in line with heightening optimism. Also, they would avoid investing in times of difficulty due to falling investment prices. Some would sell off investments as they have a pessimistic outlook on the future. In extreme cases, they often lead to manias and panics in the investment markets.
Buy in Good Times
Sell in Bad Times
So, how do they know where the market is heading in the future?
Well, the answer is to predict the markets. Many would speculate. Some will be checking on the macros and technicals if they are more sophisticated. Generally speaking, they are always trying to find the ‘best time’ to invest or to dispose of their investments. To me, that is trading or speculating.
If you are in this group, you will always be finding out if today or tomorrow may be a ‘better time’ to invest.
Even after you have invested, you would always want to find out when could be the ‘best time’ for you to sell off your investments.
That is not my approach.
Approach 2: Income Productivity
Unlike above, this group of investors believe that wealth is about owning assets that are income-productive. Thus, the measure of investment success would be based on the income productivity of the assets. The more income they produce over time, the more successful the investment.
Income Rises Over Time = Good Investment.
Income Falls Over Time = Bad Investment.
For this group of investors, they are focused on the assets’ fundamental quality. They want to know if the asset can generate increasing income in good and bad times. To them, it does not matter if the stock market, the economy, the Ringgit and the interest rates are going up or down. What matters is this. Is the asset in consideration profitable and sustainable in all economic conditions, particularly in tough times?
By focusing on income productivity, this group of investors would tend to invest differently from the above. First, in good times when asset prices are rising, this group of investors would face difficulty in finding income-productive assets that are offered at attractive valuation. Thus, they invest less in good times. But, this would be different in tough times when asset prices are falling. In this situation, this group of investors will have an easier time to find such assets at discounted prices. So, they invest more in bad times. Therefore,
Buy Less / Don’t Buy = Good Times
Buy More = Bad Times
If you are in this group, you would have less tendency to do market predictions. Instead, your focus is put on the asset’s fundamental qualities and its valuation, which makes the above question relatively irrelevant.
Should you invest during tough times?
I believe the answer lies in your belief system when it comes to investing. As for myself, my interest is in the accumulation of fundamentally strong stocks if they are offered at attractive valuations. This is because I believe wealth is about the income productivity of my assets and thus, I had invested accordingly.
Here, if you wish to learn more on the art of stock investing, here’s a free training you can attend: